Entities joining a tax group may not use their prior operating profits

Managing the deductibility limits for financial expenses within the scope of tax consolidation presents technical nuances that companies must understand to avoid errors in Corporate Income Tax (IS) settlements.

What the DGT has ruled

The Dirección General de Tributos (DGT) has addressed the question of whether a tax group can use the operating profit generated by a company before its integration to offset the group's own non-deductible net financial expenses. The ruling establishes that when an entity joins a tax group with operating profit from previous periods pending use for the deduction of financial expenses, this profit can only be used by the entity that generated it.

This scenario occurs following the distribution of non-deductible net financial expenses among the member entities of the group. The use of said pending profit must be carried out strictly following the criteria of the Resolution of July 16, 2012.

What it means for you

For groups of companies that pay tax through tax consolidation, this ruling delimits the ability to offset profits generated prior to integration. There is no possibility for the group, as a single unit, to absorb the operating profit of a newly incorporated company to mitigate the burden of net financial expenses generated by the rest of the members.

In operational terms, the operating profit of the integrating entity remains linked to its own capacity to deduct its financial expenses, preventing it from acting as a resource available to the tax group as a whole.

What should be done

Companies operating under the tax consolidation regime should perform a detailed analysis of the pending operating profits of each entity before its integration into the group. It is necessary to ensure that the distribution of non-deductible net financial expenses is carried out in accordance with current regulations and that the application of prior profits respects the exclusivity of the generating entity, as provided in the Law on Corporate Income Tax (LIS).